Question

Ultimate Butter Popcorn issues 6%, 15-year bonds with a face amount of $42,000. The market interest...

Ultimate Butter Popcorn issues 6%, 15-year bonds with a face amount of $42,000. The market interest rate for bonds of similar risk and maturity is 5%. Interest is paid semiannually.

At what price will the bonds issue? (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Round "Market interest rate" to 1 decimal place.)

Homework Answers

Answer #1

Issue price of the Bond = $46,395 (Rounded)

Face amount =$42,000

Interest Rate = 3% [ = 6%/2, Since Semi Annually ]

Interest payment = $1,260 [ $42,000 x 3% ]

Market interest rate = 2.5% [ = 5%/2, Since Semi Annually ]

Periods to maturity = 30 Years [ 15 Years x 2 ]

Issue price of the Bond

= Present Value of Interest + Present Value of Face Value

=$1260 x (PVAF 2.5%, 30 Years ) + $42,000 x (PVF 2.5%, 30 Years)

= [ $1260 x 20.93029 ] + [ $42,000 x 0.47674 ]

= $20,023.08 + 26372.16

= $46,395 (Rounded)

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